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Bruised investors have long memory of sell-offs

Steve Dorsey is taking the stock's market's teeth-clenching sell-off in stride -- but only because he sold all the stocks in his retirement account six weeks ago.

The 63-year-old attorney from San Marino, Calif., feared the debt crisis would cause the market to tumble, and he was willing to forgo potential gains to sidestep what he feared could be a huge loss.

"I thought I might miss4 percent or 5 percent upside, but I might miss a big downturn," Dorsey said. "I went through 2008 and the dot-com one, too."

The American public's once-fervent love affair with stocks has taken a beating in recent years, and the latest collapse is likely to only intensify investors' suspicion and fear.

The recent furor over the debt has further spooked investors who already were nervous over chronic U.S. unemployment and the uncertain economy.

After flocking to the market during the late-1990s Internet boom, the faith of small investors has been shaken by two bruising declines -- the dot-com bust in 2000 and the global financial crisis in 2008.

During the good times, small investors had an almost symbiotic relationship with the market. Investors needed stocks for steady gains to outpace inflation and pay for their retirements, and the market relied on steady contributions from individuals to power higher.

But despite the continuing advice to own a large helping of stocks in retirement and other long-term accounts -- and to stay put during turbulent times -- many people have grown weary of the volatility, experts said.

"People are really frightened as the market goes down," said Mark Wilson, a financial planner at the Tarbox Group in Newport Beach, Calif. "People are picturing what went on in 2008. They're flashing back to this scenario."

Their dismay is evident in the money pulled from stock mutual funds in recent years.

Small investors have yanked a net $350 billion out of U.S. stock funds in the last 5 1/2 years, according to the Investment Company Institute. They even pulled money in 2009 and 2010 when the market rallied in the aftermath of the financial crisis.

Other indicators likewise point to a souring on stocks.

Nicholas Colas, chief market strategist at ConvergEx Group in New York, measured small-investor sentiment earlier this year using Google Trends, a portion of the popular website that measures search patterns over time.

Terms such as "investing" and "stock investing," hot topics during the dot-com craze a decade ago, had fallen sharply in the past seven years, according to Colas.

The most popular investment-related term had become "saving," with 6.1 million searches a month, according to Colas. That topped 823,000 for "investing" and 60,500 for "stock investing."

Wilson, the financial planner, sees the changed attitudes every weekend in a men's soccer league in which he plays. Friends who once were enamored of stocks now want little to do with them.

"They all hate stocks today, and they hated them more over this last week and a half than they ever did," Wilson said.

Still, many small investors are like John McLamb, a real estate agent from Charlotte, N.C.

The 25-year-old is hanging onto his stock holdings, figuring that's the smart move in the long term. But that didn't make the recent volatility any easier.

"It is scary for a regular person," McLamb said. "I have time to recoup my losses because of my age. But you keep hearing for three years that jobs will be created and we'll get past this, and you wonder: What can you do?"

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